Examination of Witnesses (Question Numbers 40-59)


30 NOVEMBER 2009

  Q40  Mr Curry: How sustainable are programmes which are based on subsidy? You subsidise the fertiliser, and the Report comments that between 25% and 35% of the fertiliser could have been bought at market prices, and also that any decline in food does not seem to be sustainable after the first year or so, so perhaps the poorer citizens are not benefiting directly. How sustainable is it to base a programme on subsidy? Are we producing a mini-CAP for Malawi?

  Dr Shafik: It is quite different from the CAP since the CAP produces excess beyond need, but I understand your point.

  Q41  Mr Curry: The point is this is a subsidy-based programme and I am suspicious at how sustainable those subsidy-based programmes are.

  Dr Shafik: I completely agree with you. I am an economist by training. Personally, I approved this programme several years ago in my previous role and was greatly sceptical about the exact point you are making. There are two compelling arguments. One is, what is the counterfactual? In this case, the counterfactual was humanitarian assistance. People would have starved and we would have had to ship in food aid. We had to do that in 2005 and it cost us £21 million. This programme cost us a grand total of £6.8 million last year and has resulted in bumper harvests and for the last four years Malawi has not needed food aid. For starters, when you think about the counterfactual of food aid, it is cost-effective. The second compelling argument is the independent cost benefit analysis that we commissioned of this programme that shows in every year it actually had a positive economic rate of return and the cost benefit was exceeded, with the exception of 2008, which was a very special year, as you implied.

  Q42  Mr Curry: Let us leave aside for the moment the problem of encouraging trade between developing countries which might get over the need for food aid in some circumstances. What about the alternative of market-based approaches? I am associated with an organisation called International Development Enterprises, which is one of the Bill Gates funded programmes, and we operate largely in Ethiopia. That is entirely market-based. It is based on very small-scale, primitive, if you like, technologies, like treadle pumps, and the farmer has to buy it or rent it, and if he cannot keep up the payments it goes. Microfinance is organised so he can raise the money and the farmer is given help in getting products to market so he can earn money, or sometimes it is her, so they can expand their patch or send one of their kids to school. What this does is create more self-sufficiency and also a mini market economy. It is tough love but I find that an approach which commends itself very strongly to me as a sustainable programme over a longer term. Would you envisage moving to something more akin to that and over what timescale?

  Dr Shafik: I agree with you. I would prefer a world where Malawian farmers had access to credit and could buy inputs on the market. That is much better and much more sustainable. We are in a second best world with this current input subsidy programme. I would much prefer to move towards the kind of programme that you identify. That is clearly where we would like to take Malawi in the medium-term. Malawi is a long way from that at the moment and, again, if the counterfactual is humanitarian assistance, this is better than that. It is a trajectory here. It is also important to remember that by most standards this programme has been tremendously successful. The President of Malawi has received countless awards from the FAO. The BBC called it the Malawian miracle just last week. 14 other countries have visited Malawi to see how this programme works. It is not ideal, I completely agree with you, but in a second best world it is a pretty good programme.

  Ms Hines: As Minouche has said, the long-term and the ideal would be something. It is important to understand that at the moment that is very difficult to do because, as the NAO's Report makes clear, 90% of the farmers are subsistence farmers working a plot of an average size of an acre. Land is Malawi is not collateral because it is customary land which belongs to the village and not to you personally, which means at the moment you cannot use that as collateral to get credit. That is something which is being looked at and we, as DFID, are involved in a number of schemes using the treadle pumps and other things to encourage local co-op style development. This year, the government is taking cash crops out of the subsidy programme. Tobacco was previously part of it and that has now been removed because there are now financing mechanisms for cash crops which enable you to do it that way.

  Q43  Mr Curry: While the programme is heavily maize orientated, and I understand that is because it is a hunger alleviation programme, there are much better crops which would go to develop a market economy, for example, garlic and vegetables.

  Dr Shafik: I quite agree with you.

  Q44  Mr Curry: With the lack of a developed market farmers do not get a better price for their products. What are you trying to do to incentivise market production and help incentivise the markets themselves? Maize is a boring commodity, a crop which is essential to keep people fed, but the exciting things are these much more diversified products.

  Dr Shafik: Gwen and I went to a village and sat down with a group of women and asked precisely these types of questions: why the obsession with maize, why not consider other crops which would generate higher returns for farmers. Given that Malawi has a history of such food insecurity, growing your own maize to feed your own family is, to be candid, a national obsession. Until people have food security for their households they will not consider switching to other crops which would remunerate much more.

  Ms Hines: There are things which DFID is doing through the rest of its programme to encourage private sector development in Malawi. For example, one of the things we have done in the past year was help the government to update its own mining map using the British Geological Society. There is now a big uranium mine in the north of Malawi which is going to produce $150 million a year. That is a huge chunk for an economy the size of Malawi's.

  Q45  Mr Curry: You can buy a lot of maize with that.

  Ms Hines: You can buy a lot of maize with that.

  Q46  Mr Curry: You could buy it from Zimbabwe if it could produce it.

  Ms Hines: Just last week, we published with the government a new country economic memorandum and part of that was a growth constraints analysis. Last year Malawi had a growth rate of 9.7% and that is unprecedented in Malawi. Since 2005 it has had an average of 8% after 25 years of stagnation. Maize has helped to achieve that. The point of the research we did and which we published last year was to say what in the future will help deliver growth in Malawi and what are the constraints, including access to finance, which we can work with the government to tackle.

  Q47  Mr Curry: Can I just come back to a point I made earlier? The Report does state that somewhere between a quarter and a third of subsidised fertiliser could have been bought by people at market prices. It looks like the poorest Malawians have not been targeted directly on the assumption that they will benefit from a general reduction in the price of food, yet on page 35 it says that, while more food is available, beyond the first year food prices have not decreased and at the time of writing the Report were still high. Have you really helped the poorest people?

  Dr Shafik: This programme was not intended to reach the poorest of the poor, for example, landless households; it was meant to reach the productive poor who could use the inputs effectively. The best evidence of the impact on the rural poor is that rural wages have risen faster than maize prices, so rural workers' incomes actually went up. I think that is quite a compelling story. The evidence we have is that about a million people have been lifted out of poverty in the last few years, in large part as a result of the gains that have been made in the agricultural sector.

  Q48  Mr Burstow: I just wanted to draw attention to figures 2 and 16 which address issues around poverty and then the ratio of nurses to population varying by district. It is quite striking that, if you look about halfway from the bottom of figure 16 to the middle of the table, many of the districts referred to there are at the top of the league table when it comes to being in ultra-poverty and poverty. I am particularly interested to explore what is being done to address the issue of deficiencies of doctors and nurses in rural locations. Why has Malawi not made more progress in this area to incentivise and get more medics into the hard to staff areas?

  Dr Shafik: Again, it is important to remember the baseline from which we are starting. Life expectancy in Malawi fell from 48 to 39 years, one of the lowest rates of life expectancy in the world, mainly due to HIV. In 2004, 10 out of 28 districts had no doctor present. Now all districts have at least one doctor and the ministry of health has confirmed that by 2011 all districts will have at least three doctors. Starting from an incredibly low base, they have made fairly decent progress.

  Q49  Mr Burstow: Just on that point, if I may, briefly, in paragraph 2.16 it does say that by the end of 2007 in many districts a third of nurses and two-thirds of doctors remain behind the 2005 national average baseline, let alone the national targets for subsequent improvement. There are places where the lack of progress is masked by perhaps greater progress in maybe more urban areas.

  Dr Shafik: The government has problems, like all countries, in getting people to be posted in poorer, rural isolated communities. They have built 500 houses which the ministry of health has recently constructed to try and make it more attractive for people to locate in rural areas. The minister of health, who I met, is looking at a package of additional incentives to make it attractive to people to move to rural areas.

  Q50  Mr Burstow: The Report describes the salary top-up for doctors and nurses as a possible way of addressing this issue. Why has DFID not chosen to adapt that as a way of trying to help direct doctors and nurses into these areas both to make sure they are properly paid but also to incentivise those moves?

  Dr Shafik: It is something we can look at, which is increasing the financial incentives for rural postings. The top-up scheme has been remarkably successful at retaining health workers in Malawi. We are helping to pay for a 50% increase in wages, which has stemmed the tide of health workers leaving the country. It was often said that there were more Malawian health workers in Manchester than there were in Malawi; that is no longer the case. It has also encouraged many people to stay in the health sector because many health workers and nurses were switching to other professions because pay was so low. Clearly, the ministry of health does need to look at whether they can use additional financial incentives to get people to stay in rural areas.

  Q51  Mr Burstow: How do you know that, given that it says in paragraph 2.19: "The health ministry does not compile annual data, and attrition will be measured in an evaluation of the programme between September 2009 and June 2010"? Do you actually have data that really allows you to say that with confidence?

  Ms Hines: As the Report said, it is not something which is measured on an annual basis. What we have got is data from the beginning when we know that, for example, in the first year of the health swap in 2005 there were 96 health workers who left Malawi and in the following year there were 30, so that was a huge fall even in the first year. There are various ways which we use to triangulate the data that we do have. If you go to any hospital or any clinic in Malawi, what they will have is flipcharts on the wall showing how many health staff they have, and they have everything from how many births they have to how many deaths they have and what types of operations. Aggregating data at the national level and quality controlling that is difficult, but if you are prepared to go round the country and go to the health facilities, as we do, you can actually pick up a huge amount of very rich data to spot-check what you are seeing from the national government data. I would also point out, as the NAO Report acknowledges, that it takes six years to train a doctor in Malawi. Since this health swap was only launched in 2004, we are only now beginning to see the real improvements in terms of numbers of doctors and that is why, as Minouche has already said, the doctor figures will improve so dramatically over the next couple of years.

  Dr Shafik: Just to add to that, they are producing 500 nurses and 55 doctors every year who are entering the system and that will improve the numbers even further.

  Q52  Mr Burstow: That is obviously very encouraging. You mentioned earlier on that now every area has at least one doctor, but the Report refers in 2.16 to the fact that in many cases where that one person is in place they are temporary appointments. What is being done to make sure that this workforce growth is sustained and sustained growth is put into the places where it is most needed?

  Dr Shafik: Clearly, getting the numbers up is a key part of that and additional incentives to rural postings is another part.

  Ms Hines: There are a number of ways the government tries to do this from the salary top-up to additional training. They are also looking at bonding to a certain extent people who are trained through the government system so they have to serve in rural areas, which is something they do with teachers as well. It is also something that we have been talking to the World Health Organisation about because they are doing a study on this globally, how you can incentivise health workers to go and stay in rural areas. They are looking at Malawi as an example. Their preliminary conclusions suggest there is no quick-fix solution; what you need is a range of these types of measures. In Malawi, the health programme which we are currently funding will be subject to a major evaluation over the next 12 months as it draws to the end of this first phase so that we can make sure the second phase is even more carefully targeted.

  Q53  Mr Burstow: Can I briefly switch to another area, which is going back to the line of questioning Mr Curry was asking on about maize and particularly this issue of subsidy and the timeliness of subsidy? One of the points the Report in paragraph 3.7 refers to is that certainly in two seasons now the subsidies have arrived too late or there are barriers in the way, both in terms of the amount of distance to be travelled or amount of time that has to be waited before gaining access to fertiliser, which makes it a less than perfect scheme. What is being done to remove those sorts of obstacles and what is being done to make sure that the whole scheme is more timely?

  Dr Shafik: Part of the reason for the delays in previous years was because we had this minority government situation and the government was unable to pass a budget until quite late in the fiscal year, hence the fertiliser was late in being delivered. That was a major factor. This is a large programme; it reaches 1.6 million households. There have been implementation delays, but we have been working very closely with the government through the logistics unit to make sure that the implementation delays are addressed.

  Q54  Mr Carswell: Since 2003 £312 million worth of aid has been given to Malawi. Dr Shafik, how much of that has been general budget support, approximately?

  Dr Shafik: Of the £312 million, in any particular year, for example in 2008, the budget support was about £27 million. It has been roughly about a third of the programme in each year.

  Q55  Mr Carswell: About a third of the total aid budget. Can you personally account for how all of that is spent? I do not mean can you tell me which tick boxes and project scores have been met, but can you account for that in a way that would be credible in a western country to make sure it is not being siphoned off?

  Dr Shafik: We undertake fiduciary discharge before we approve budget support and that involves a set of risk assessments that we do before approving a budget support programme. We have to assess whether a country has fiduciary standards that are acceptable. We have to ensure that things that are being spent on are things that we would consider eligible. There is a set of quite complicated criteria that is an internationally agreed standard.

  Q56  Mr Carswell: So you can account for it?

  Dr Shafik: I can account for it, yes.

  Q57  Mr Carswell: It is not being used to subsidise Mercedes Benzes or the property market in South Africa or to top up foreign bank accounts? This is going on, or it is not?

  Dr Shafik: The government has a spending programme. When you do budget support you are supporting a broad spending programme. The decision we have to make is, are we comfortable with the broad areas that the government is spending on?

  Q58  Mr Carswell: What I am trying to work out is if the British taxpayers' money is ending up being taken by kleptocracy for personal benefit.

  Dr Shafik: The way we address that is we fund the anti-corruption commission in Malawi.

  Q59  Mr Carswell: We give them half a million pounds.

  Dr Shafik: We do, and they are incredibly active. In fact, if you look at their recent prosecutions in 2006 the minister of education was prosecuted and fired. They had 118 cases recommended for prosecution in 2009.

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